OBV (On Balance Volume)
Category: Volume indicator
The OBV is a popular indicator that measures positive or negative volume movements. The indicator is very simple in design. Increases the rate count the daily volume in the OBV of yesterday, dropping a course pull it back from. The total cumulative volume forms the OBV indicator line. The OBV indicator is used to confirm a trend or a weakening in an early phase of a trend to be observed. The indicator is based on the concept that "volume precedes price"
On Balance Volume Signals
The value of the OBV chart does not matter, the analysis is done on the movement and direction of the OBV.
On Balance Volume Trend Confirmation
In an uptrend hear a rising OBV with increasingly higher tops and bottoms, with a declining trend hears a falling OBV. The direction of the price trend is confirmed by the same movement in the OBV. As long as the price and the OBV trend is the move synchronously powerful and reliable. (See chart below tm mid 2nd quarter confirm the price and OBV together, uptrend is strong.)
On Balance Volume Divergences
In ascending peaks in the rate but declining peaks in the OBV (negative divergence) OBV gives a warning signal that the trend weakens. The volume supports the strength of the uptrend anymore. The uptrend will soon come to an end. The same applies of course also vice versa when a positive divergence at the end of a down trend.
The graph below we see a falling OBV between mid 2007 and mid-2nd quarter 4th quarter but still a rising rate. The strength of the uptrend weakened in this period and ends in a reversal by the lower bottom half put the 4th quarter of 2007. The uptrend is over and goes directly into a downward trend (which could then be confirmed by the OBV).
OBV indicator (negative divergence) in ProRealTime
Figure 1: OBV indicator in the Heineken (negative divergence)
Calculation OBV
The OBV is a cumulative volume of pressurizing a rising trading the daily volume is added and a declining trading the daily volume is subtracted from the OBV yesterday so that a new arises OBV as the basis for the next day.
Examples:
Price rises -> OBV = OBV yesterday + daily volume
Price falls -> OBV OBV = yesterday - daily volume
Price equal -> OBV = OBV yesterday
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